About 100,000 'super rich' Australians would feel the burden of a new death tax, which could raise about $5 billion a year in federal revenue if introduced, according to Community Council for Australia chairman Tim Costello.
Call for death tax on 'super rich' families
Nassim Khadem, BusinessDay Deputy Editor, unpacks the death tax that tens of thousands of 'super rich' Australians would face under a proposed tax reform.
Many countries including the United States and United Kingdom already have what's called a death or inheritance tax – with differing rates and thresholds – that aims to claw back some money from rich people bequeathing assets to younger generations.
The OECD has recommended such a tax is worth exploring in Australia, but one of the major problems is that people start transferring wealth before they die to avoid being hit.
But Mr Costello, who is World Vision CEO and chairman of the council that lobbies for charities and the not-for-profit sector, said just because people would try and dodge the tax, it was no reason not to introduce it.
"This should simply be on the table," he told Fairfax Media.
Australia was facing growing income inequality. Baby boomers who had benefited from free tertiary education, the housing boom and superannuation tax breaks, now held about 40 per cent of the nation's wealth.
Super rich should get hit
Mr Costello said ABS and ATO data shows that about 100,000 Australians have net wealth in excess of $5 million. A quarter of those (about 25,000) have net wealth above $10 million. If just 4 per cent of those households paid 35 per cent in estate duties, it would equate to about $5 billion a year in annual revenue, Mr Costello said.
And at a $5 million threshold, the tax would apply to less than 1 per cent of the Australian population, he said. "So people generally hate death duties, but 99 per cent of Aussies will not be affected," he said.
"Two things are certain in life, death and taxes; if you have to pay taxes the best time is when you die; you are liquidating assets and you can still leave the bulk to your kids," he said.
"Sure there's tax avoidance schemes. But you don't not do something because people avoid. If you did that, you wouldn't be collecting income tax."
Two things are certain in life, death and taxes; if you have to pay taxes the best time is when you dieTim Costello, Community Council for Australia chairman
Mr Costello said if a death tax were introduced in Australia, there could be an exemption for people who gave assets to charity.
Australia out of sync
Death or inheritance taxes exist in many countries overseas including the UK, Italy, France, Belgium and Canada.
The United Kingdom's inheritance tax (IHT) is a tax on money or possessions people leave behind when they die, which gets levied at 40 per cent once people pass a £325,000 ($665,000) threshold. There are certain discounts available if people give to charity.
Mr Costello said at least $100 million in additional donations could be going to charity if the Turnbull government brought in a death tax.
"Charitable giving in Australia from the rich is low compared to Britain and America," he said. "If [people] donated part of their inheritance to charity that portion could be tax-free."
While a higher rate of GST could deliver about $30 billion a year in annual revenue, Mr Costello said it was "a tax on everyone and there would be huge churn reimbursing the poor".
He said the federal government should still also tackle inequitable tax breaks such as negative gearing and superannuation concessions, despite the political sensitivity.
The Henry tax review had recommended a tax on estates to help deal with Australia's changing demographics, including the fact that a higher proportion of all household wealth will continue to be held by older Australians.